Contagion of Investor Sentiment in Online Investment Communities: Evidence from Dynamic Visuals on Stocktwits

74 Pages Posted: 18 May 2022

See all articles by Ming Gu

Ming Gu

University of California, Irvine

Siew Hong Teoh

UCLA Anderson School of Management

Shijia Wu

The Chinese University of Hong Kong, Shenzhen - School of Management and Economics

Date Written: April 30, 2022

Abstract

Psychological research suggests that communication using dynamic visuals attract higher attention and induce higher activation response than text and static images. Stocktwits is a social media platform where postings about a stock can include GIF images (henceforth GIFs) and declare their sentiment (bullish or bearish). We study the associations of GIFs with user-declared stock sentiment, trading behavior, and future stock returns at the firm-day level. On firm-days with GIF postings, we find higher net bullish sentiment, higher retail order imbalance, and short sale volume; and initial positive abnormal returns followed by a longer-term reversal. The GIF associations with sentiment, return overreaction, and short sale volume are stronger on firm-days with popular GIFs, with GIFs with declared sentiment, with GIFs from influencers, and in firms with higher retail ownership. Retail buys and retail sells separately, and not order imbalance, are stronger in firms with higher retail ownership. These findings suggest that dynamic visuals in social media postings are associated with greater investor attention and higher bullish sentiment, resulting in net buying and overpricing of the stock, especially among retail investors.

Keywords: GIF, Dynamic Visuals, Visual Natural Language Processing, Investor Sentiment, Trading, Stock Mispricing, Anomalies

Suggested Citation

Gu, Ming and Teoh, Siew Hong and Wu, Shijia, Contagion of Investor Sentiment in Online Investment Communities: Evidence from Dynamic Visuals on Stocktwits (April 30, 2022). Available at SSRN: https://ssrn.com/abstract=4110191 or http://dx.doi.org/10.2139/ssrn.4110191

Ming Gu

University of California, Irvine ( email )

P.O. Box 19556
Science Library Serials
Irvine, CA 62697-3125
United States

Siew Hong Teoh

UCLA Anderson School of Management ( email )

110 Westwood Plaza
Los Angeles, CA 90095-1481
United States

HOME PAGE: http://www.anderson.ucla.edu/faculty-and-research/accounting/faculty/teoh

Shijia Wu (Contact Author)

The Chinese University of Hong Kong, Shenzhen - School of Management and Economics ( email )

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